Russia and Egypt to establish 'free trade zone' and build nuclear reactor

Egyptian President Abdel Fattah al-Sisi has hailed the economic and security relationship between Egypt and Russia, and announced the establishment of a “free trade zone” between Egypt and the Russian-led Eurasian Economic Union (EEU).

Speaking at a press conference in Cairo with Russian President Vladimir Putin on Tuesday, Sisi praised the two countries' cooperation in the fight against a mutual "terrorism" threat.

“We have stressed in this regard that we are supporting […] each other to face these challenges as terrorism is everywhere now and everyone is suffering from terrorism," he said.

He said it was important to “fight terrorism intellectually” and said there was a need to address the “social issues” that led to it.

Egypt has faced repeated attacks from the Sinai-based militant group Welayat Sinai who have pledged support for the Islamic State (IS).

For its part, Russia has faced an insurgency in its Muslim-majority Chechnya region since the 1990s. Though primarily a separatist movement, the militant groups in Chechnya have been increasingly adopting an ideological outlook inspired by Saudi Arabian Wahhabism, and there are thought to be thousands of Chechens now fighting with IS in Syria.

Trade Relations and Nuclear Power

Sisi also announced a strengthening of trade relations between the two countries, culminating in a preliminary agreement to create a Russian industrial zone in Egypt, near the Suez Canal. The pair also said that they would set up a nuclear power plant designed to “help Egypt reach its energy needs”.

Egypt had taken steps in the early 1980s to launch a nuclear plant to produce electricity in Dabaa but it was shut down after the Chernobyl disaster in 1986.

The EEU currently consists of Russia, Armenia, Belarus, Kyrgyzstan and Kazakhstan and has generally been seen as an attempt by Russia to provide a counterweight to the European Union (EU).

The decision by Egypt to increase its bilateral trade with Russia is likely to further increase tensions with the EU and the US, who have placed sanctions on Russia over its alleged interference in the Ukraine conflict. It is possible the meet might also upset wealthy Gulf donors who have clashed with Moscow over its support of Syrian President Bashar al-Assad.

"Putin continues to take advantage of ambiguity and contradictions in Western policies toward the Middle East," Anna Borshchevskaya, a Russia and Middle East expert, at Washington Institute For Near East Policy told AFP.

As long as Washington criticises "Egypt's democratic backslide... it keeps open the door for Putin... to gain influence in Egypt at the expense of US interests," she added.

While no statements were made about the possibility of arms sales, following a meet in Russia last summer, Putin announced that the two countries were close to penning a $3bn deal for Moscow to supply missiles and warplanes, including MiG-29 fighters and attack helicopters. However, Washington has since resumed its annual $1.5 bn in aid to Egypt, also delivering Apache helicopter gunships to fight militants in the Sinai.

Booming trade

Speaking at Tuesday’s press conference, Putin went on to state there was more than $4.5 bn of trade between Russia and Egypt in 2014, a more than 80 percent increase on the previous year.

In a further controversial move, the two countries have also suggested they may stop using the dollar in bilateral trade and instead use national currencies.

“This measure will open up new prospects for trade and investment cooperation between our countries, reduce its dependence on the current trends in the world markets,” Putin told Egyptian state newspaper al-Ahram.

“I should note that we already use national currencies for trade with a number of the Commonwealth of Independent States (CIS) states, and China. This practice proves its worth; we are ready to adopt it in our relations with Egypt as well. This issue is being discussed in substance by relevant agencies of both countries.”

Egypt offered to increase agricultural exports to Russia by 30 percent as Russia underwent Western economic sanctions last year for its part in occupying parts of Ukraine. 

Putin was an early supporter of Sisi, rallying to his side quickly following the coup in July 2013 that overthrew the elected government of Mohamed Morsi, a Muslim Brotherhood leader.

"Only the current Egyptian leadership's determination and wisdom saved this key Arab country from chaos and having extremists run rampant,” he told an audience at the Valdai Discussion Club in October 2014, praising Sisi for preventing a Syria-style collapse into civil war.

Israeli-Palestinian peace talks

Both Putin and Sisi also agreed on Tuesday on the need to pursue a two-state solution in the Israel-Palestine conflict.

Though Putin has been a longterm supporter of Iran and Syria, two staunch opponents of Israel, he has maintained cordial relations with Israel and was the first Russian leader to visit the country, in 2012 appearing at a ceremony in the northern city of Netanya to honour Jewish soldiers serving in the Red Army during the Second World War.

The large number of Russian-born Jews in Israel has also been seen as strengthening relations between the countries.

Israel was also notable in being one of the few US allies, along with Egypt, not to publicly condemn Russia over its annexation of the Crimea Peninsula in 2014.

Speaking to al-Ahram on the eve of his visit to Egypt, Putin said "concessions" were needed between the Israelis and the Palestinians.

“We urge both parties to make concessions to each other and to search for common ground in order to normalise the situation,” he said.

“We will further pursue this policy, both through bilateral channels and on various international platforms, first of all within the framework of the Middle East Quartet of international mediators, the activities of which should be intensified. We also consider it important to ensure close coordination of the Quartet’s efforts with Egypt and other Arab countries.”

Daniel Levy, director of the Middle East and North Africa programme and the European Council on Foreign Relations (ECFR), said the strengthening Egypt-Russian ties should come as no surprise.

"Incorporating a Russia angle into one’s geostrategic toolbox appealed to many Middle Eastern states even before the current crisis, as Russia had been actively re-asserting itself in the region in recent years," he wrote on the ECFR website.

"Which is not to say that the West’s Middle East allies really see in Russia a replacement option – rather that they see greater value in both doing some geo-strategic balancing and in being able to use a flirtation with Russia as part of their respective strategies for managing the West, deflecting any Western criticism and guaranteeing future Western assistance and arms sales."

He also pointed out that Russia was now the number one source of tourists to Egypt, which has seen a drop-off in tourism as the security situation has deteriorated in the country.